self employed

Changes to Self-Assessment Filing Threshold: What You Need to Know

Changes to Self-Assessment Filing Threshold: What You Need to Know

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The UK government has introduced a significant change to the self-assessment tax filing process for high earners. Individuals earning over £150,000 per year through the Pay As You Earn (PAYE) system are now required to file a self-assessment tax return, marking a shift from the previous threshold of £100,000. This update simplifies tax obligations for many and could reduce the administrative burden. At SA Lee Accountancy Ltd, we’ll explain what this means for you and how to ensure you’re fully compliant.

 

Why Has the Threshold Changed?

The new threshold of £150,000 reflects the government’s aim to simplify tax filing for those whose tax is primarily handled through PAYE. Previously, earners over £100,000 were required to file a self-assessment, even when there was little complexity in their tax situation. This increase is expected to reduce the number of unnecessary self-assessment filings, giving taxpayers more time and reducing paperwork for both individuals and HMRC.

Impact on High Earners

For those earning between £100,000 and £150,000, this change means they no longer automatically need to file a self-assessment, provided their income is solely through PAYE. This can help streamline their tax process. However, if you have additional income sources such as rental income or dividends, you may still need to file a self-assessment. It’s always best to verify your tax obligations, even if your income falls within the PAYE system.

For individuals earning over £150,000, self-assessment remains essential. It’s important to file returns on time to avoid penalties and to ensure all income is correctly reported. You may also want to explore ways to optimise your tax situation, such as through pensions, charitable donations, or other available reliefs.

Key Considerations for Planning

Although the increased threshold reduces the filing requirements for many, this is no time to overlook your tax planning. Effective tax management remains important, particularly for those nearing the £150,000 threshold. By staying informed about deductions and allowances, such as pension contributions and investment reliefs, you can ensure that you’re maximising your financial efficiency.

 

At SA Lee Accountancy Ltd, we advise all high earners to review their tax situation regularly to ensure compliance and avoid any unnecessary penalties. We can help you understand your full tax obligations and offer guidance on managing your self-assessment process effectively.

Conclusion

The increase in the self-assessment threshold from £100,000 to £150,000 is a positive development for many high earners, reducing their tax filing burden. However, if you’re earning over £150,000, it’s crucial to stay proactive with your tax planning and compliance. If you’re uncertain about your filing requirements or want to explore tax-saving opportunities, contact SA Lee Accountancy Ltd for expert advice, we look forward to hearing from you.

Self-employed Vs Limited company

Self-employed Vs Limited company

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When setting up your own business people are often unsure whether to register as Self-employed or as a Limited company. There is no right or wrong choice, but there may be better opinions for you based on the company you plan to set up.

Self-Employed

Being self-employed means that you have unlimited personal liability, you will be the single owner of a business (unless there is a partnership agreement). Owners would register themselves as self-employed through the government gateway and register for Class 2 National insurance. Self-assessments must be filed by the 31st January, these can be filed before this date but any tax and National Insurance due must be paid by the 31st January. This includes the 1st half of the on-account money due, with the remainder being due on the 31st July. Late submission of self-assessments and payments will result in fines and interest charges.

Tax Allowances are currently £12500, this means you can earn up to this amount without being taxed. National Insurance Class 4 allowance is £9569, this means you can earn up to this amount without paying any Class 4 National Insurance. The allowance for Class 2 National Insurance is £6515. Class 2 National insurance is taxed at £3.05 per week.

Advantages of being self employed

> You get 100% of your profits.

> It is easy to get started with your business.

> You make the decisions.

> Less admin involved.

> You can offer a personal touch to customers.

Disadvantages of being self employed

> You have unlimited liability

> You’re fully responsible for your business.

> You can only raise limited finance.

>There is a limited scope of expansion.

> You take on all liability.

Limited company

A limited company divides ownership between 1 or more people. Directors have a limited liability on their business, debt & losses. Most directors would be paid by PAYE, if a director takes drawings from the company, then a self-assessment must be completed.

Being a shareholder could mean you are entitled to a dividend if the company is making a profit after the tax liability has been met.

£0-£2000 dividends are tax free.

Dividends over £2000 will be taxed depending on your tax bracket.

Basis rate threshold 7.5%

Higher rate threshold 32.5%

Additional rate threshold 38.1%

Limited company profits are subject to corporation tax at 19%.

Advantages of a limited company.

> You can be more tax efficient.

> It is easier to leave the business.

> Losses & Debt are not personal.

> You are better perceived.

> You won’t be personally sued.

Disadvantages of a limited company.

> You must prepare annual accounts.

> There is more financial admin.

> You have less privacy.

> Taxation rules are more rigid.

> You have less input.

However you decide to run your business is up to you as the owner, but please be aware that whether you are self-employed or a limited company you must register for value added tax (VAT) if you are approaching £85,000 on turnover (Not Profit).

 

Please note, that all figures are correct at the time of writing